Author Topic: DISCA/DISCK - Discovery Communications  (Read 44703 times)

jtvalue

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Re: DISCA/DISCK - Discovery Communications
« Reply #120 on: September 08, 2017, 07:27:16 AM »
I understand US subs are declining in range of 2-3% and that the SNI acquisition will take them to 5x debt/EBITDA - but come on!  The stock has declined 23% since the deal. I currently have it trading at a pro-forma FCF yield of 16% after the deal closes and they will quickly delever back to 3.5x. Anyone else have thoughts?


HalfMeasure

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Re: DISCA/DISCK - Discovery Communications
« Reply #121 on: September 08, 2017, 09:21:49 AM »
I understand US subs are declining in range of 2-3% and that the SNI acquisition will take them to 5x debt/EBITDA - but come on!  The stock has declined 23% since the deal. I currently have it trading at a pro-forma FCF yield of 16% after the deal closes and they will quickly delever back to 3.5x. Anyone else have thoughts?

Free cash flow does not matter in this market. Please provide a better thematic driven story, bonus point for every use of the word disruption.

KJP

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Re: DISCA/DISCK - Discovery Communications
« Reply #122 on: September 08, 2017, 09:55:44 AM »
I understand US subs are declining in range of 2-3% and that the SNI acquisition will take them to 5x debt/EBITDA - but come on!  The stock has declined 23% since the deal. I currently have it trading at a pro-forma FCF yield of 16% after the deal closes and they will quickly delever back to 3.5x. Anyone else have thoughts?

Free cash flow does not matter in this market. Please provide a better thematic driven story, bonus point for every use of the word disruption.

U.S. terrestrial broadcasters have the same very large spread between FCF yields on their equity and the yields on their debt.  I don't know how other people evaluate these businesses, but my concern is that, given the very high debt levels at these companies, an equityholder who's interested in holding these as a long-term investment must be very comfortable that FCF is going to remain strong for many years.  Given all the changes that are happening in video distribution, do you have confidence in what Discovery's or Nexstar's FCF is going to be in 2029?

On the other hand, in its latest debt offering, Discovery was able to issue 30-year notes at a 5.2% yield.  Would you rather own the equity at a mid-teens current FCF yield or a 30-year note with ~5% yield?

Also, if the thesis is that you'll be able to sell this for $27/share in 6-12 months just from normal volatility, then what I said above is not really relevant.

Packer16

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Re: DISCA/DISCK - Discovery Communications
« Reply #123 on: September 08, 2017, 10:07:20 AM »
The key here IMO is what is the debt trading for.  For many of these media names the debt is trading in the BBB/BB range & the reason for the spread is the fear of substitution.  Substitution will happen bu the question will the incumbents have enough time to react (ala fixed-line & cellular) or not (newspapers & internet).  I am of the opinion that there is enough time to react to the substitution will be adopted by the incumbents before the disruptors can cause much damage.  This is what the bond market is saying also & I also believe the bond marker before the stock market anyway.

Packer

KJP

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Re: DISCA/DISCK - Discovery Communications
« Reply #124 on: September 08, 2017, 10:37:15 AM »
The key here IMO is what is the debt trading for.  For many of these media names the debt is trading in the BBB/BB range & the reason for the spread is the fear of substitution.  Substitution will happen bu the question will the incumbents have enough time to react (ala fixed-line & cellular) or not (newspapers & internet).  I am of the opinion that there is enough time to react to the substitution will be adopted by the incumbents before the disruptors can cause much damage.  This is what the bond market is saying also & I also believe the bond marker before the stock market anyway.

Packer

What's the maturity on the debt you're looking at?  If the concern is that these businesses might really start to decline 7-15 years from now (which would greatly affect the equity), how much does the yield on 5-year debt tell you?

jtvalue

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Re: DISCA/DISCK - Discovery Communications
« Reply #125 on: September 13, 2017, 08:46:41 AM »
I saw that DISCK was just written up on SumZero.  Anyone have access and care to share?

Philip Morris IV

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Re: DISCA/DISCK - Discovery Communications
« Reply #126 on: September 13, 2017, 02:21:45 PM »
The key here IMO is what is the debt trading for.  For many of these media names the debt is trading in the BBB/BB range & the reason for the spread is the fear of substitution.  Substitution will happen bu the question will the incumbents have enough time to react (ala fixed-line & cellular) or not (newspapers & internet).  I am of the opinion that there is enough time to react to the substitution will be adopted by the incumbents before the disruptors can cause much damage.  This is what the bond market is saying also & I also believe the bond marker before the stock market anyway.

Packer

What's the maturity on the debt you're looking at?  If the concern is that these businesses might really start to decline 7-15 years from now (which would greatly affect the equity), how much does the yield on 5-year debt tell you?

From what I can see today, 6-9yr debt for DISC is trading around 3.3-3.8% and 23-26yr debt is trading around 5.2%.  Still looks like a decent debt/FCFE yield spread even on the long end.

KJP

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Re: DISCA/DISCK - Discovery Communications
« Reply #127 on: September 13, 2017, 03:03:55 PM »
The key here IMO is what is the debt trading for.  For many of these media names the debt is trading in the BBB/BB range & the reason for the spread is the fear of substitution.  Substitution will happen bu the question will the incumbents have enough time to react (ala fixed-line & cellular) or not (newspapers & internet).  I am of the opinion that there is enough time to react to the substitution will be adopted by the incumbents before the disruptors can cause much damage.  This is what the bond market is saying also & I also believe the bond marker before the stock market anyway.

Packer

What's the maturity on the debt you're looking at?  If the concern is that these businesses might really start to decline 7-15 years from now (which would greatly affect the equity), how much does the yield on 5-year debt tell you?

From what I can see today, 6-9yr debt for DISC is trading around 3.3-3.8% and 23-26yr debt is trading around 5.2%.  Still looks like a decent debt/FCFE yield spread even on the long end.

Yes, I know about the current yields on Discovery's long-term debt and agree about the spread.

I was asking about the other "media names" with debt "trading in the BBB/BB range" that Packer referred to in his post.  I assume he's talking about broadcasters like Sinclair and Nexstar that have shorter-term debt, but I could be wrong.

dwy000

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Re: DISCA/DISCK - Discovery Communications
« Reply #128 on: September 13, 2017, 04:15:44 PM »
"I believe the bond market before the stock market"

Never has a truer word been said.  The company just sold 7 year notes off the back of doubling down in the industry and they got priced to yield 2.5%.

Spekulatius

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Re: DISCA/DISCK - Discovery Communications
« Reply #129 on: October 22, 2017, 06:32:20 AM »
Couple anecdotal observations and thoughts:

- IMO, the world is awash in too much content. BTW, this is not just about DISCA. I have the same opinion about Netflix/Amazon/Disney/etc. Does not mean that content companies can't make gigabucks. Might mean that competition is bigger than people expect. DIS is making nature movies now too: DisneyNature Born in China.
- Non-fiction library value is less than fiction library value. DISCA might have brand, but while people rent and watch 10 year old movies, they don't much rent and watch 10 year old nature documentaries.
- I think DISCA is pushing a lot into international markets. This might still be somewhat of tailwind, but I can't quantify how much.

I still hold my shares. I also hold some LGFB. Liberty pieces that haven't gone up recently and might be somewhat cheap (for a reason).

The content inflation is real. Amazon and Netflix now produce a lot of content that competes with the existing players.  Scripted content >> non scripted content. For documentaries, I can pull all I want from YouTube for free or Amazone prime or Netflix. That is a big threat to Discovery, which has to compete and itís is one reason why Discovery and similar channels go into scripted content. That however also begs the question how Discovery channel can differentiate itself.

Personally, I found that Fiscovery channel was not missed after cutting the cord and is easily replaced by YouTube or Amazon content. I never liked the scripted shows in Discovery channels to begin with l but I do know that some people do. These scripted shows donít travel as well internationally though.

I wonder how much cost cutting can really be done between SNI and DISCK without loosing something too.  Generating content does not really seems to have much economies of scale and that is really where most of the operating cost is.
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